Last month, I was putting together the new market positioning for our SMSF management service and I was reminded of just how poor general SMSF management can be through the eyes of a financial planner.
SMSFs are highly over-exposed to Australian shares and in particular the top 20 stocks. SMSFs have an extremely low portion of their investments world markets which account for 98% of the world rather than the 2% Australian stockmarkets represent. A lot of the time too much cash is held on the sidelines as SMSF investors are unsure whether to invest and prefer the security cash provides. Most SMSF members do not have access to an online reporting system to effectively track any market movement nor do they have any professional managers watching over their savings whatsoever.
To make the matter worse, they are also exposed to something we all are guilty of and that is generally due to human behaviour we are not great at managing money. Behavioural finance proves we are all a little too emotional around our lives and our brain plays tricks on us. The bloody brain i say.
Anyway as I reflected and thought this isn’t just a small issue, it is systematically HUGE.
So really why is this? Why have so many SMSFs around the country got these type of highly concentrated portfolios?
As I thoughts about it more; I came to two simple conclusions… I like simple.
Number one: They are not getting advice….as no sane adviser would recommend this
Number two: The advice they are getting is from someone who does not comprehend the benefits of investing via a diverse portfolio.
So I took the thinking to a second level – If they are not getting advice “why is that?” The answer i came up with was also pretty simple - they hate advisers, do not trust us and think they can do a better job than us…. Not great but true.
Secondly, if their accountant is advising them; Why haven’t they recommended an adviser? Well that was also just as easy - they hate us, do not trust us and believe the client would be better off without us… Not great but true.
Moving on I thought; If I was going to tackle the self-directed problem first. I considered that if they are not using their accountant, than what are they basing and making their decision on?
Friends, family, guy or girl on the street, TV, internet, magazines and the government I thought. As I got to the government I remembered that I had wanted to attend in the past one of the talks the ATO offer on how to run your own SMSF. That would be a perfect way to be in a room full of people running their own fund and I can really see the reason why i thought.
I booked and that seminar was last night.
As I entered the room at 99 York St, there were around 10 people sitting down and many were in their mid 40s to 60s…as you would expect. A nice little flyer was given to me that was well written in simple terms however very old from a graphic design point of view. It is however the content that matters and it made sense in explaining what an SMSF is. The speaker; a very knowledgeable friendly chap started the session.
He started by explaining that today was about giving information and educating you about what a SMSF is and what you need to consider. I thought to myself “this is a lot of what I do” and so I was happy to be there while looking forward to hearing his views.
As he went around the room, it was clear that only one person had a SMSF and some were what i like to call information gathers who never act due to the trance of information paralysis (another conversation altogether). Importantly however some were genuinely in the room for personal advice in regards to their situation, they had questions and they wanted answers. When I realised who they were later on, I wanted to pull up a chair and have a chat. I stayed quiet however and pretended I was looking to open my own SMSF.
Unfortunately this story is going to go a bit sour very fast for the financial planning industry. On slide five of his introduction he states that the government funded organisation he works for does not give or imply financial advice, does not do individual case work and wait for it does not recommend specific strategies or investments. That’s great I thought.
I confidently waited as he explained the slide thinking he would end with a positive note and say well that is the important role financial advisers play in your investment team. Boy was I horribly wrong.
He started to bring up all the reasons not to use a financial adviser and how they could not be trusted. His words were all extremely negative and in reality went on a tangent so deep that I didn’t even want to see a financial adviser and I am one.
I was feeling a bit shocked but also a sense of acceptance that that the room was nodding in agreement with his opinion and even chuckling about how bad advisers are. He finally moved on and begun explaining what an SMSF is.
As the two hour seminar continued it was filled with a lot of great content but he went on to two distinctive tangents that did nothing but bad mouth what advisers do. The first delved in to the issue around tax advice and the cross over line between accountants and financial planners. Not something that was even part of the information but all very negative and he had to stop himself from getting upset. The second was around the point that if you are considering hiring an adviser that you should make sure you interview at least 7 or 8 advisers because you cannot trust most. Not ideal but hey at least he is saying you should see one?
In all fairness this is not an attack at all about the service they provide or the gentlemen running the seminar; he was great, knowledgeable and really does a top job… more importantly he did care about people. What it is however is just another nail in the coffin that we all need to face the facts that society really does hate us.
Lets not beat around the bush anymore and pretend society will change their view of us. Lets not be stubborn and pretend we have nothing to hide from and we are angels.
In a large portion of cases we do have a lot to answer to. We are providing highly conflicted advice and we have for many years put our interests ahead of our clients. It’s a fact, it’s the truth and let’s not kid ourselves. We need to change.
In the past when I introduced myself to friends and new contacts, it’s been hard to say with a great big smile on my face that I am a financial planner. I do now however as I am extremely proud of the business I am building and the advice I give but was I before and the answer was NO.
I know a lot of advisers feel the same and should we feel this way? Well no we should not... Just like every other person who does a job we all have something to be proud of, no matter what we do.
So i think it is clear. We all know that financial advisers are not the first people, people think about when they have to list professions they can trust. Going on from the ATO above; if you read ASICs recent report only 3% of advice was considered good.... ASIC are not fans either.
So my question is this, if society really does hate us.... What is the solution?
Like all good phycologists will tell you; the first stage to fixing a problem, is realising you have a problem in the first place.